129 | Stop Adding Fuel to a Broken Engine – How to Finance Growth the Right Way with Brad Poulos

Patrick: [00:01:00] [00:02:00] Welcome everybody. I’m excited about our conversation today. We’ve got Brad Pulis on the show, uh, and Brad’s gonna talk about, uh, what it takes to really run a business successfully.
I’m happy that he’s joining us here today, Brad. Thank you.
Brad Poulos: Great to be here.
Patrick: Yeah, so I, I look at the entrepreneur and there’s, there’s so many challenges that are, that are out there. We think about the entrepreneur, they’re strong visionaries, rainmakers, but they’re still operating the business with. I don’t know, avoidable inefficiencies, weak systems, poor decision frameworks and costly blind spots.
Uh, they may have built something impressive, yet still feel like they’re carrying so much, uh, of the [00:03:00] operational baggage. And, uh, there’s, with that comes too much uncertainty. Too much responsibility, uh, ends up on their shoulders. And then we think about the internal problems they keep asking themselves.
Why does running a business still feel harder than it should at this level? Why am I still solving the PR same problems over and over again? Why do I have success on paper, but still feel exposed in, in the execution of, of running this business? And then how do I become a better operator, not just a better producer?
And underneath it all is just this frustration of knowing they have more potential, but sensing the the poor structure. Uh, and reactive leadership, it, it’s just unrefined and it, uh, keeps them from, from building real freedom. Then philosophically, the entrepreneur should not have to learn every expensive lesson the hard way.
Um, people who create value in jobs and opportunity deserve access to practical operating wisdom from leaders who’ve actually done the work. Real business owners, uh, deserve better than, than the theory without having to, to come by [00:04:00] it through all the scars. So. Uh, Brad, I am excited about, uh, you helping us unpack and solve some of these problems today.
Brad Poulos: On that last point, thank goodness that we have form forums like this, right? So, uh,
Patrick: Yeah.
Brad Poulos: was starting out in business, there was no such
Patrick: I.
Brad Poulos: a podcast and not, not an easy way to get at others who had kind of come before me and could show me the way. So thank goodness that we have this.
Patrick: Yeah, yeah. No, absolutely. And I, I’m excited. You’ve got 40 years of, of being in the, uh, the trenches building companies. Uh, you, you’ve done, you know, incredible work through, um, everything from taking companies public to, uh, so many different industries. So can you just give us a little bit of your, your background?
Brad Poulos: Sure. Without being too boring about it. Uh, started out as a, well, actually if I go way back when I was, was a chicken farmer, but, uh, that was when I was 14 and my dog quickly put me out of that business. So, um. Spent a little bit of time in the jewelry industry and decided I didn’t [00:05:00] like that. And when I was in my early twenties, I went to tech school.
So started out as a techie, worked my way, uh, through 15 year career in the corporate, in corporate, uh, world, at the same company, uh, Tesat, which is one of the largest satellite operators in the world. And. I kind of moved from the tech side to the, by the time I left, I was running about half the company, about a $75 million book.
Uh, and I was basically in charge of sales and marketing and engineering for, for that part. And then, uh,
Patrick: And, uh,
Brad Poulos: into
Patrick: into,
Brad Poulos: with
Patrick: start out with my brother.
Brad Poulos: that for about 10 years. was in the wireless industry, so sort of adjacent to what I had been doing, but. Quite, quite, quite a journey because it started out as, uh, four people when, when I joined him and, uh, we grew it up to 200, went public, morphed it a couple times too because the industry, the, the tech industry changed. We went through the.com boom and bust. Uh, we were there for really the, the, the [00:06:00] birth of digital, digital cellular. We were switching from analog to digital, so that involved a pivot Ultimately when we went public,
Patrick: public, I actually
Brad Poulos: so we did it through a reverse takeover
Patrick: take over.
Brad Poulos: president and CEO of the company that technically bought us.
Patrick: Mm-hmm.
Brad Poulos: brother and I ended up being the largest shareholders, so that’s how I ended up being president and CEO. And what’s really interesting is actually that was a goal of mine and I hated it. I, I found out I did not like, I did not like being president of a publicly traded company. I don’t like having, you know, thousands and thousands of potential bosses. I don’t
Patrick: Yeah.
Brad Poulos: one, which is why I’m a professor now.
Patrick: Yeah. Yeah. No. And, and can you talk a little bit about, uh, the professor? ’cause I think that, that, that says something to me. You know, somebody that’s oftentimes we, you know, we’ll, we’ll have professors that are maybe book smart that, uh, haven’t been in the trenches. And, um, but then we’ve had people that are also, like, been in the trenches, but they, they can’t take those [00:07:00] skills and, and, uh, translate that to teaching it to people.
So can you talk a little bit about that, that evolution?
Brad Poulos: Sure. It, uh, like so many things in my life, it was kind of random how I got into it. But, um, uh, having left the publicly traded company, I spent, uh, I spent a year working in another startup that was actually an offshoot of the company that we sold. And, uh, that was right at the time when the financial crisis hit. And we were selling what was ultimately a capital expenditure for semiconductor manufacturers. And it, that business just went right into the tank because with the, with the financial crisis of 2007 and eight, it, um, the. funds just dried up. So
Patrick: So I had always, I actually
Brad Poulos: some
Patrick: had,
Brad Poulos: teaching young people about business through an organization called Junior Achievement, which exists in both of our countries.
I’m in Canada, you’re in the States and, um. So I knew doing that. So I just kind of on a [00:08:00] flyer, I sent out my resume to one college, the one that was closest to home, and, uh, got a job there like almost right away. Uh, again, probably through more luck than good design. but then, uh, a colleague of mine from when I did my MBA, he was in the entrepreneurship department at.
Toronto Metropolitan University, and it’s actually very, very strong. We have a very, they have a very strong entrepreneurship program there, and he was the chair of that department. And so he, he, he said, if I had known you wanted to teach, man, I would’ve reached out to you. So, so I’ve been teaching there for about the last 17 years and, I, I absolutely love it.
It. Keeps me, keeps me young working around, you know, people that are 19 to 25 years old and, um, getting to it’s fun to, to share my wisdom, but also I learn a lot from them and, uh, that’s why I keep doing it.
Patrick: Yeah, I, I, I love it. So if it’s okay, I’d like to get into some of the nitty gritty, uh, [00:09:00] of, of taking a business that I’ll say is running fairly well, but now starts to feel like it’s, uh, uh, a burden. And, and we see this in different industries. You hit certain revenue thresholds and you’re. Uh, all of a sudden it went from like, Hey, this is a lot of fun.
I’m making pretty good money to man, I’m making a lot more revenue, but we’re not making any more money. ’cause I’ve, I’ve had to hire, hire more people and we’re, we’re just not as efficient as we should be. So, uh, I dunno if that’s true about every industry, but, uh, can you just talk us through like what, what are common things that you’re seeing in, in how businesses are, are being run and operated that, uh, are, are causing them problems at different stages?
Brad Poulos: Sure. The, the, the biggest one is probably just getting out of the way, so being able to let go. your baby. built
Patrick: Yeah.
Brad Poulos: most of the time, right? So, um, being able to let go, hire people that are quite often gonna be better than you at certain functions. I mean, one would
Patrick: Yeah.
Brad Poulos: if you’re gonna hire, let’s say, uh, A [00:10:00] CFO.
Patrick: Mm-hmm.
Brad Poulos: want somebody who’s better than you at finance. Otherwise, why the heck did you hire that person? Right? So
Patrick: Right.
Brad Poulos: be
Patrick: Yeah.
Brad Poulos: then let go, give them room to make decisions. I fundamentally believe that if you don’t give lots, if you don’t give, give people lots of rope, you’re not gonna be able to, you might be able to attract, but you won’t retain the A players, you’re gonna end up with a company of. Be players. And that quite often is the reason why, uh, your company, it might be growing. You might be able to grow at the top line, but you’re not growing the bottom line because you don’t have the absolute best people. And, uh, so, so I would, I would say start with the, that ability to let go the, the, uh.
Acceptance that decisions are gonna get made that are not, you cannot question every decision. You can’t, can’t be countermanding things just because it’s not the way you would’ve done it. actually a concept that I teach in my small business class called Satisficing what it has to do with, [00:11:00] it’s not a word that, uh, I, I had only heard of the word maybe 10 or 15 years ago.
You know, so it’s a fairly new, fairly new concept for me. Uh, what it means is that you don’t have to optimize every single decision. Uh, the, the example I use when I tell my students about it is the shirt that I picked today, I went down the closet, I knew what pants I had on, and I picked the very first shirt that works. I didn’t optimize the decision. I didn’t pick the ab. Best shirt. I picked the first one that works. And a lot of the time in business Satisficing, a decision works just fine. And I think the
Patrick: And I think the art
Brad Poulos: for an operator to know which decisions do I have to spend a lot of time working on, uh, thinking about analyzing.
Patrick: analyzing.
Brad Poulos: lots of in input and information and optimizing versus which ones can I satisfy. So anyway, you, you gotta let the people make some decisions. You have to accept the fact that they’ll make probably [00:12:00] almost always, well, not, maybe not almost, let’s say often they’ll make a different decision and sometimes they’ll make a decision that you actually think isn’t necessarily the best one.
But it, it’s, it. Sometimes it doesn’t matter. And. By jumping in and changing things, you really, you’re gonna chase away those A players.
Patrick: Yeah.
Brad Poulos: so
Patrick: Yeah.
Brad Poulos: probably the number one problem that I see in, uh, people that, that are having difficulty scaling.
Patrick: I love it. And, and when we think about how we learn any skill, right? Like if, if I read a book about, uh, riding a bike, if I watch somebody ride a bike, like. Those are all fine. It might gimme a little bit of insight into how to ride a bike, but I’m not going to learn how to ride a bike until I’m actually riding the bike.
And I think that’s so true of, of different aspects of the business. If, if we don’t give people the opportunity to ride the bike, fall down, scrape their knee. Now we wanna make sure that they’re not gonna ride the bike off a cliff. Right? Uh, we wanna [00:13:00] protect them and the business, but, uh, uh, we do wanna give them some, some latitude to, uh, go out there and make mistakes.
And, and then pretty soon, you know, they, they might be really efficient at riding that bike. They might be better at riding the bike than, uh, we were, but, uh, you know, I, I think there’s an opportunity there to, uh, raise our people up and delegate in a way that, uh, we can feel okay with and be like, all right, cool.
Uh, because it’s, it’s actually necessary for us to, to. To grow for sure. Uh, but absolutely at the scaling point, like if we can’t, if we can’t bring people in and let them just run, uh, we’re, we’re gonna have a really, really hard time. I dunno if you have anything to add to that, but, uh, I’ve, I’ve got another question.
Yeah.
Brad Poulos: touched on the fact that it’s, it’s tacit knowledge, right? You, you learn it by doing. You have to actually give it,
Patrick: [00:14:00] Mm-hmm. Yeah.
Brad Poulos: you know, I play the piano and there was a day when I, and I only started in my forties. Uh, there was a day when I didn’t know how to learn. I didn’t know how to play the piano at all.
Patrick: At all. Mm-hmm.
Brad Poulos: how do you learn? Well, you just start.
Patrick: Yeah. Yeah.
Brad Poulos: thing with a bike. Um, so, and, and I think it, it’s equally true with all kinds of, different functions and, and, uh, skills in
Patrick: Yeah.
Brad Poulos: as well.
Patrick: So the, the thing that I’m thinking about here is, uh, I, I am, I’m challenged a little bit by the title of your book, most Problem Solved Themselves. Uh, but I think what you’re, what you’re talking about is, is leading us to, uh, the title of this book. And so can you talk a little bit more about that?
’cause what I, when I read that, it’s uh, it’s very provocative. It makes me wanna go, you know, pick it up and go, well, what’s going on in here? Because, uh, I [00:15:00] find, you know. Some problems in my business are like a small smoldering fire, and if I let that small smoldering fire go, it’s gonna be a raging inferno here before we know it.
But, uh, yeah. Can you, can you talk a little bit more about that? Mm-hmm.
Brad Poulos: of all, you’re not the only one.
Patrick: Mm-hmm.
Brad Poulos: I, I talked to a lot of people before deciding what to call the book, and it’s
Patrick: Mm-hmm.
Brad Poulos: to understand that the book isn’t about that. So the book is actually 52 different,
Patrick: Mm-hmm.
Brad Poulos: short articles, and that is just the title of one of them. But I purposely chose one that I thought would be a little bit provocative. Um, a handful of people told me it’s gonna turn people off. Well, that’s fine. I can’t write a
Patrick: Yep.
Brad Poulos: gonna make everybody happy,
Patrick: Totally.
Brad Poulos: So with
Patrick: Yep.
Brad Poulos: so that’s not what the book is about, but the, the particular article that it’s really drawn from, uh, what it’s the, the point it’s trying to make.
And, and I’ll tell you actually, it’s, maybe I could start with where, where I first learned this. did a little startup inside, uh, the satellite company when I was [00:16:00] working there. I got an opportunity from the president to do a business plan for some new technology that would ultimately ended up being the first satellite based, uh, high speed internet product in Canada anyway. And, uh, so we, we had some technology brought to us, but that, that wasn’t a business. So he said like, go look at this tech and, tell me if you think it’s worth looking at further. And then ultimately he said, okay, go write a business plan. So I. Did and. Actually, there’s lots of interesting stories around that, but that’s not the point. I, at the time, I still had to do my regular job and I was very, very busy at the time, of course. So I
Patrick: Yeah,
Brad Poulos: a philosophy that a lot of people don’t like. But, um, if somebody, other than
Patrick: somebody.
Brad Poulos: my boss or my boss’s boss asked me to do something, I just ignored it. Until they asked at least twice. It’s sometimes three times. And, uh, the, the idea
Patrick: Idea was that
Brad Poulos: I’m just too[00:17:00]
Patrick: I
Brad Poulos: answer on the first time. I mean, it, it,
Patrick: I mean.
Brad Poulos: universally true if I really thought something after reading the email if I thought I should do it, I did, but a lot of things, it wasn’t my problem and I just let it go and I never got the second email. I realized, so, you know, a lot of problems just go away. And then, um, when I had my own business, it wasn’t so much that I ignored things, but I gave people, so people would come to me with a problem. And, uh, a lot of the time I would use the words as, I traveled a
Patrick: I traveled.
Brad Poulos: my business. ’cause we were felling all around and South America. I, I’d say, well, what would you do if I wasn’t here? Because a lot of the time I wasn’t. And they’d say, well, like this. I’d say, well then do that. And so, um, the problem didn’t need me that, so that’s,
Patrick: That that’s really what that,
Brad Poulos: I.
Patrick: that all about. Yeah. No, I, I love it. And, uh, I, I think it fits nicely with, [00:18:00] uh, what we were talking about before that. So, um, this is
Brad Poulos: understand there, like there’s an art between knowing which
Patrick: mm-hmm.
Brad Poulos: jump on,
Patrick: Right,
Brad Poulos: not saying you do that every time, right? So you have to
Patrick: right.
Brad Poulos: able
Patrick: Yep.
Brad Poulos: discern between the things that actually need your management attention and those that don’t. And all it does, I, I think when you, when you let people. solve problems. It just helps them grow, makes them
Patrick: Mm-hmm.
Brad Poulos: and, and
Patrick: Yeah.
Brad Poulos: a players.
Patrick: Right. Absolutely. And I, I think about, uh, back to our bike analogy, right? Like if I see somebody’s gonna fall over and they’re riding at a low. Uh, speed. It’s like, that’s okay. Like we, we, we can let that happen.
Brad Poulos: Yeah.
Patrick: they’re gonna learn, they’re, they’re gonna figure it out. But if I see them riding towards the cliff, I’m gonna go protect them from that.
Right? Like, that’s, that’s not good for anybody. So, uh, I, I, I do appreciate your, your comment about discernment and making sure that, uh, you know, we’re. Uh, we’re letting people learn and grow in a, you know, controlled environment. And then when we need to [00:19:00] step in and make sure that, uh, you know, both the, the business and the employee are, uh,
Brad Poulos: Yeah,
Patrick: not, not suffer, you know?
Brad Poulos: And at
Patrick: Go ahead.
Brad Poulos: let’s not forget, there’s a thing called training wheels for that bike.
Patrick: Right,
Brad Poulos: you start them with training wheels and then you take the training wheels off, but you still watch them to make sure they’re not gonna go over the cliff. And then one day you know that you don’t have to worry about that.
Patrick: right. Yeah. Yeah. No, this is, uh, this is great. Now, Brad, another thing that I think is worth talking about, um, is, is it another factor for a business that’s, that’s growing is, um, we’ll call it the, the finances, right? Like if I have capital coming into the business, it, it helps me, uh, uh, grow, but I can also take on that capital in.
Uh, ways that can be, uh, slow me down. Right? And, and I think of it a, a couple different ways. If I put it into broad buckets, right? On one side I can take on a partner. Uh, this is the most expensive possible money out there. Um, [00:20:00] or I can take on, uh, debt, we’ll, we’ll call it. Um, and that can also be, if not structured properly, also a problem.
Uh, so can you talk us through like, how do I navigate this, uh, this opportunity to. Finance my business in a way that, uh, allows me to, to grow and, uh, not be burdened by either, uh, over overbearing partners that don’t know anything about the business or, uh, debt that’s just, uh, unhealthy. I.
Brad Poulos: I think either w whether you go either in either direction, whether it be through equity or debt, it’s always ill-advised to be taking on additional financing when you haven’t got the business really like. Chugging along, and you haven’t
Patrick: Mm-hmm.
Brad Poulos: good solid business model, you know, you have to have, throwing more fuel on an unprofitable business can sometimes be a disaster. So it may, you may wanna actually take a [00:21:00] step back and optimize some things before you do that,
Patrick: Mm-hmm.
Brad Poulos: say you’ve got a nice, profitable business and you’ve
Patrick: Yeah.
Brad Poulos: let’s, um, you’re, you’re at the point where you just can’t grow any further. The bank, uh, maybe you have a like, um. You have a line of
Patrick: Have a line of credit,
Brad Poulos: uh, the bank’s saying, we’re not gonna
Patrick: we’re not gonna
Brad Poulos: credit
Patrick: credit,
Brad Poulos: some more capital in the business.
And that actually happened to me, by the way. That’s
Patrick: by the way, that’s another
Brad Poulos: that y’all have solved themselves, because I can literally tell you that my, uh, we, we got an increase in our line of credit and the bank said to, to me, you know, you guys are
Patrick: guys are gonna have.
Brad Poulos: money in too. And I’m like, oh, yeah,
Patrick: Oh
Brad Poulos: course we we’ll do that.
We never did and we never heard from them. We got the increase, so there’s another
Patrick: yeah.
Brad Poulos: that just went away.
Patrick: Yeah.
Brad Poulos: but, but anyway. So let’s say you’ve, you’ve built the business to the point, or you’ve, you’ve optimized the business. It’s, it’s humming along, you’ve, it’s uh, it’s efficient and all that. I would actually lean first toward debt uh, my, my rationale there [00:22:00] is that, uh, partners don’t go away. Um, debt can be retired. It’s also cheaper. Like you said, bringing on a partner is absolutely the most expensive equity you could possibly, uh, you know, go and, or,
Patrick: Mm-hmm.
Brad Poulos: the most, uh, expensive form of financing that you could possibly get. So, so I, I would start with debt and, and, um, only when you’ve kind of tapped that out, would I then be looking for some form of equity, whether that be a, a partner or, um. A, uh, a more passive investor, you know, that kind of thing. And then if you’re, if you’re building to exit, then you can also look at, and you’re big enough, you can start to look at things like angels and maybe even ultimately venture capital. But certainly angels, they’ll play at the couple hundred thousand dollars levels.
So
Patrick: Mm-hmm.
Brad Poulos: that’s an option. But you have to have a, you have to have your eye on an exit for that to work.
Patrick: Right. Yeah. And it’s interesting, a lot of our clients have been on the angel investor side of things, [00:23:00] and uh. The number of those businesses that work out, you know, might be one in 10. Uh, but the ones that do, uh, and it might be a little higher than that, but it, it doesn’t seem like it’s a lot higher than that.
And, uh, but the, those that do, uh, they. Uh, they hit and they work. Uh, but I, I don’t, I don’t, I don’t love that, uh, I feel like it’s really hard to vet an operator and figure out, uh, the best way to, uh, you know, make one of those investments for, you know, an exit at some point. Uh, if somebody’s been there, done that, you know, that’s the way to go, but yeah.
Brad Poulos: and the thing is like angels typically do kind of get involved more in the growth, the growth type businesses, which are much more risky than that.
Patrick: Mm-hmm.
Brad Poulos: That kind of typical business that you said your, your audience is, which is an, an established operating business that has a net income.
Tho those are a lot less risky, but they’re also less attractive to an angel because, just because of the way their model works, they’re looking for those, you know, a a 10 banger and [00:24:00] that, that, you know, that’s not really that kind of bit we’re talking about. So.
Patrick: Yeah. And, and I, I do appreciate your, um, your comment about, Hey, maybe the first thing you need to do is not force more gasoline on the fire. You need to, uh, make sure your business is healthy before you start adding more capital to it. Uh, ’cause one of the things we think about there is there’s, there’s a couple factors.
The first is when I’m running a business, I can get really creative if I run out of money, right? Like I, I start paying attention to my margins and how do I drive more revenue in and how do I do it more efficiently where I may not be looking as closely at those things if I just have a ready source of capital that I can keep, uh, uh, keep chugging along.
And then the other thing is when we, we put sort of. You know, gas in the, the engine. You know, if, if we think about a flywheel, it’s fine if it’s, if it’s spinning slowly and it’s slightly out of balance. Um, but you, you [00:25:00] spin that thing up and you run it pretty fast and it’s out of balance, pretty soon it’ll break the whole thing apart.
And, uh, oftentimes we, we see that that can happen with too much growth, too much capital, that that’s coming into the business. You try to spin it up really fast and you’re not foundationally strong enough to, uh, handle all of that. Uh. That, that growth. So I dunno if you have any thoughts or comments on that, but
Brad Poulos: the analogy I use with students actually, ’cause I teach, I teach several courses, but one of them is entrepreneurial finance.
Patrick: mm-hmm.
Brad Poulos: uh, so we talk about leverage.
Patrick: Yeah.
Brad Poulos: if you think about where, like where did that metaphor come from? Well, it comes from science and the notion of a lever.
A lever, right?
Patrick: Mm-hmm.
Brad Poulos: a lever do? my words, it amplifies results. Right. It gives you a mechanical advantage if we’re talking about the one that, you know, you used to, I don’t know, move a rock or something, but, but it basically amplifies, you know, results. So, uh, the thing is the lever doesn’t care.
The lever is not, has no, uh, morals [00:26:00] and, uh, it will amplify bad results. So if you throw debt at, or equity, frankly, at, um, a business that isn’t performing well, you’re just gonna do worse. So.
Patrick: Yeah. Yeah. No, this is, uh, this is great and I, I, I appreciate this wisdom and insight.
I don’t feel like there’s a lot of resources out there for, uh, entrepreneurs that are looking for, uh, how to. How to figure out their, their, their capital, uh, structure so they can grow the business.
And so I, I’m thinking about your book from Pitch to Payoff, uh, a Founder’s Guide to Finance, um, is a, is a great resource for people. Uh, and all of your books can be found on, on Amazon. And we’ll make sure we have links to those in the show notes and we’ll, we’ll make sure we, uh, recap on those in the end.
But, uh, yeah, I, I think there’s, um. Uh, just a fantastic opportunity if you’re, if you’re like, okay, I’m, I’m ready to grow my businesses, is in a place where we can, we can do this. We just need some more capital. Um, you, you’ve created some great resources for them. We appreciate [00:27:00] it.

Patrick: [00:28:00] Brett, anything else on the, the finance side that we should be, be talking about?
Brad Poulos: Uh, it’s not so much finance, but I think it’s a, it’s a point that comes up fairly often with my clients and even among, uh, friends of mine that own businesses. ’cause I have several of those as well. And it’s the idea of bringing in minority partner. Uh, it’s, it’s actually something I think you should do very, very sparingly. And, uh, so the, the example would be, let’s say you have a sales manager. Well, it’s not an example, it’s a true story from my life. And so, um, sales manager. There’s, there’s three of you that own the business today. You have a sales manager and they, they come to you, uh, one day and they [00:29:00] say, you know, Brad, I, I’m a big part of this company, you
Patrick: Company
Brad Poulos: want a piece of the rock and they wanna
Patrick: they buy.
Brad Poulos: it’s, I’m not gonna give it to you. So they wanna, and they know that, so they wanna buy like 5% of the company and. And, and the, the conversation that, uh, that I generally have is, well, like, let’s think about really why you want to do that. Because like, what do you get as a shareholder in a company? Um, so there’s actually three things that you get when you’re a shareholder of a company.
So the, the first thing is you get a dividend, maybe. You get a dividend if we’re giving out, if, if we’re distributing dividends. And the thing is, I’m in Canada and the way, the way a small business, um, the way our small business taxation system works is you’re kind of ambivalent whether or not you take a salary or a dividend up until you get to a significant level of profit.
Patrick: Mm-hmm.
Brad Poulos: company had
Patrick: our company had never stated,
Brad Poulos: Uh, we just took
Patrick: we just took voting.
Brad Poulos: [00:30:00] it didn’t affect us. Uh, like negatively or positively having done that. So,
Patrick: So
Brad Poulos: take that
Patrick: let’s take that one off the table,
Brad Poulos: the
Patrick: uh,
Brad Poulos: that you
Patrick: ly.
Brad Poulos: you get some say, right, you get some influence, but like technically as a shareholder you get influence over so little. That it’s not even funny, like you
Patrick: Money, like hit vote
Brad Poulos: and, uh, a few other things, right?
Patrick: Right? But I said,
Brad Poulos: in the senior management team of this company, you know, one of
Patrick: you know, one of the key donors doesn’t even work here.
Brad Poulos: you have, you have more say
Patrick: You have more stay than that industry.
Brad Poulos: 33% of this company.
So by buying
Patrick: by buying 5% of a scale,
Brad Poulos: you’re not
Patrick: you’re not gonna like, you’re not gonna get more stay.
Brad Poulos: You know, you already
Patrick: You already have all kinds of
Brad Poulos: firm,
Patrick: different, like the moment you buy five, six, like.
Brad Poulos: be consulting you on things that we don’t already ’cause that it won’t be happening. So then, and the third thing is that you might get a payoff if we ever exit. we actually, at the time, we were not building for an exit. [00:31:00] Um, and so, you know, actually this individual, you know, what I did is I offered him a phantom share plan. And so the phantom share plan would, basically, the way it worked was. Uh, if we ever have an exit the nanosecond, before we do that, we’ll issue you some shares in a tax effective way and you’ll get part of the, basically you get to take advantage of the, of the exit, right? And the individual quit. But the thing is, they can be a real pain in the. But in the behind, and I’ll, I’ll give you a real example, but not my life. So a very good friend of mine, uh, had, uh, several shareholders, I can’t remember the number, four or five in the firm. And lo and behold, sales manager 5%. And they had a very, very nice exit. And the night before the papers were signed, they did not have a shareholder’s agreement and they, so therefore, they did not have what’s called a drag along [00:32:00] clause. And the night of the, the, on the eve of the closing of the deal that share that, that sales manager demanded $50,000 check from the other shareholders to get his signature on the papers and they paid it So. That’s why you’d be very, very careful about bringing on minority shareholders and ask yourself why you’re doing it.
Patrick: Yeah. No, this is so good. I, I appreciate this. ’cause we, we see business owners thinking, oh, I’ve got to compensate my team with equity and, and, and employees want equity. But if you step back for a second, all of the problems you just outlined, uh, start to become apparent because here’s there, there’s sort of two factors.
You know, as an employee, what I really want is compensation. Right. I, I want to be compensated for my impact. And if that’s, uh, annually based on some of our performance metrics, great. Like, I think we could probably design a, a compensation structure to do that. That doesn’t [00:33:00] mean you have to have equity in the company.
Um, and then there’s, there’s the exit question. Uh, you know, how do we, how do we exit? We’ve seen a number of clients. Uh, do this effectively with, with phantom stock programs here in the States, it’s 4 0 9 A is a, is a great way to do that. You know, you can, you can issue these shares to people. Um, you have to do it in a, you know, a compliant way.
Um, please. We’ve had clients that have. You know, just made these sort of offhanded comments, promises to people, and it’s like cleaning all that up is a disaster. Uh, so please, please don’t do that. Uh, consult with your advisors before you, you start making promises to your employees about equity. But, uh, uh, you know, when we think about it, it’s like, okay, we, we, people want one of two things.
They wanna be compensated this year, you know, for the, the cool work they’re doing. Or if we’re driving the value of this company and we know there’s an exit, uh, we’re happy to. Maybe take less compensation today for a big payout down the road. Uh, because we understand if we [00:34:00] take less today, it allows us to, to build bigger, faster, stronger.
And then, you know, it’s, it’s worth something more on the backend. And so we’ve seen that design that way and it, it seems to work well. Almost every time we’ve seen actual equity given out, it’s just messy. Uh, somebody will leave the company. Now we have to value that stock and we have to buy it back for a moment.
It’s like, oh, it just, uh. Uh, it just never seems to work well, so there’s, there is good ways to do it, and please find good advisors before you start handing out equity in your company. So, yeah.
Brad Poulos: right. That, and that, that, that last bit is so important using good advisors if you decide to do it.
Patrick: Right?
Brad Poulos: I do preface the, well, I’m not prefacing it, but I’ll. I’ll as an afterthought,
Patrick: Yeah.
Brad Poulos: if, if you are building some kind of tech startup for and, and absolutely an exit is on the horizon,
Patrick: Mm-hmm.
Brad Poulos: absolutely give out options.
Come up with a fair shm phantom share plan. Uh, the.
Patrick: Yep.
Brad Poulos: Uh, if you’re bringing on a co-founder, and [00:35:00] again, you’re building for exit grant them equity, it’s, I’m not
Patrick: Yep.
Brad Poulos: that kind of business.
Patrick: Right.
Brad Poulos: the one, the family business, let’s say, or the one that’s
Patrick: Mm-hmm.
Brad Poulos: built for the long term. There’s no, no real thoughts around an exit. That’s, that’s what I’m talking about.
Patrick: Yeah. Yeah. This is, this is good. And so one of the things about family businesses that I think is interesting is, um, you know, we’ve got multiple generations and, uh, you know, it, it’s interesting to see how, uh, the, the generation that builds the business, the second generation might take it a step further, but then it starts to, uh, maybe deteriorate from there if there’s not real, um.
Real intentional planning around it. You know, I think a lot of times the outsiders can look at the business and be like, and we’ll say the outsiders, you know, if there’s, uh, let’s say three siblings in the business, or three siblings in the family, only one’s in the business, the outside siblings are like, Hey, I want a piece of that.
You know, where’s [00:36:00] my share? And, uh. It’s kind of, it’s often unfair to the, the owner in the business. You know, if everybody else is getting some, some cash or they’re getting equity and now I’ve got partners that, you know, I want nothing to do with. But, um, I dunno if you have any thoughts or comments about, you know, taking a family business and having some, some continuity with that to, to help protect against some of these, uh, these situations.
Brad Poulos: Yeah, for sure. Family. I find family business, like serious family businesses, multi-generational ones. I find them to be absolutely fascinating and there’s some great stories, good and bad from, uh. our countries there. No, no question about it. The the first thing you started with, actually there’s a, there’s a saying and I, for a while I actually taught a family business course and so I, I really deep, I dug deep into the theory and, found there’s a saying that like literally exists in, in almost every language and, uh, it, it’s shirt sleeves to shirt sleeves in three generations. [00:37:00] So, and it’s, it’s been, been proven over and over and
Patrick: And over and over again.
Brad Poulos: a great example in our country is, uh, the, the Tea Eaton Company was the very first big department store. They had a catalog in the, like 1870s, something like that. Now it took them about four generations to ruin it, but they’re outta business now. You know, they were, they were the largest department store in Canada back in the, like fifties and sixties. And by the eighties
Patrick: the age
Brad Poulos: I think they died in the nineties. By the eighties they were more abundant. And, uh, part of it is
Patrick: part of it is
Brad Poulos: uh, that that third or
Patrick: third or fourth
Brad Poulos: uh, they didn’t have to see the
Patrick: generation, generation. Often
Brad Poulos: a company that, that the father or the mother built and, but they were there while it
Patrick: they’re.
Brad Poulos: So they, they have an appreciation for how hard it is and they don’t feel as entitled. But that third generation often didn’t, didn’t see that. [00:38:00] So they, they have this sense of entitlement.
They have probably a sense that it’s easier than, than what it really, really is. And, um, make a lot of just dumb decisions, and it’s happened over and over and over again. Now, the other thing that you touched on though, uh, you know, I guess this really comes down to kind of your, your families and, and the, the pat, the, the founders’ morals. But, but I’ve, I, I maybe take a little bit of
Patrick: A little bit of issue, what you
Brad Poulos: like, let’s say it’s generation. And there’s only, uh, let’s say there’s three siblings and let’s take cousins and stuff out of the picture just to make it easy. and one of them was working in the business and the other two aren’t. Well, I, I don’t think it’s fair for the other two to get nothing
Patrick: agree. Yep.
Brad Poulos: because the, the, the father or the mother built that business and there’s a thing called inheritance, right? So,
Patrick: Yep.
Brad Poulos: it’s, it’s striking the [00:39:00] balance
Patrick: Right?
Brad Poulos: what do you get as an owner. Because they might be owners,
Patrick: Mm-hmm.
Brad Poulos: like shareholder level influence
Patrick: Yep.
Brad Poulos: then, um, what you get as a manager. And for that you’d get like all of the influence of course. And you should be very handsomely paid for helping to make your brother and sisters, uh, wealthy.
Patrick: Right. Yep. Yeah, no, I, I agree. And I, I, ’cause one time, one thing that we, we have discussions with clients about all the time is. Uh, equal doesn’t necessarily mean fair, you know? So if we take this to business and then we divide it into thirds, you know, and somebody’s running that business, um, effectively, it’s like, you know, now they might be a minority shareholder.
They might not have authority in the business that they’ve been running for the. You know, 10 or 15 years very successfully. And, you know, the other siblings might be like, Hey, this is all cool, but we’re not reinvesting in that thing. We’re not making that acquisition, we’re distributing it out. All of it,
Brad Poulos: Right.
Patrick: know, the, the profit in the business.
And [00:40:00] so it’s like there are ways to structure it in a way that’s healthy for the business and for, I’ll maybe even say more importantly than the, for the relationship, you know, between those siblings, like we, we’ve seen. Uh, a quarter million dollars spent in legal fees fighting over, you know, family assets and, uh, people won’t talk to each other anymore.
And it’s like, man, that’s unfortunate. I, I wish there was good planning done on the front end to protect against that on the backend. And, uh, you know, people, uh, especially some of these older generations, they keep the cards really close to the vest. They don’t talk about anything. They don’t, they don’t discuss their planning.
They think it’s all gonna be okay, and then. Uh, then it’s, you know, effectively the, the cards that are played, uh, after the person passes away and it’s like, man, this is a bad hand. And people are mad about it. And so they, um, you know, they’re suing each other and it’s like, geez, you know, if we would’ve had some, some good dialogue other than the front end, it would’ve been, uh, it would’ve been better.
So, um,
Brad Poulos: Dialogue and advice, you [00:41:00] know,
Patrick: yeah.
Brad Poulos: um, advisors and including lawyers
Patrick: Yep.
Brad Poulos: you structure things in a way that, uh, now, I mean, idea of fair isn’t the same, but, uh, as long as, as long as it’s fair to the founder, you know, like
Patrick: Mm-hmm.
Brad Poulos: up the way that they think is,
Patrick: Right?
Brad Poulos: now. That might involve just giving all of the shares to the person who’s in the business, which would
Patrick: Mm-hmm.
Brad Poulos: to me. But,
Patrick: Right.
Brad Poulos: but, um, yeah. Anyway, yeah, yeah. Advise, get, get third party advice
Patrick: Mm-hmm.
Brad Poulos: kind of matters because,
Patrick: Yeah.
Brad Poulos: otherwise the family may not survive. The business might survive, but the family might not.
Patrick: Right? Yep. Absolutely. Um, yeah, totally, totally agree with that, Brad. There’s, there’s so many things we get to be talking about with, um, a business from operations to, uh, the financial structures. What else should we be touching on before we wrap up? Mm-hmm.
Brad Poulos: We haven’t really talked much about. [00:42:00] Um, entrepreneurship itself and, and expanding businesses and, and opportu finding opportunities and knowing which ones to, uh, to jump on and
Patrick: Mm-hmm.
Brad Poulos: not, and how, how to do that nowadays. And,
Patrick: Yeah.
Brad Poulos: so. Probably the biggest lesson for me across my, like my several, couple decades of doing this stuff is that we, we start with sales.
Now, know, you, um, you, you sell before you build. And, uh, I’ll, I’ll actually loop
Patrick: She lives back.
Brad Poulos: I, I, I alluded to this business that I, I got to start inside Tesat my sort of intrapreneurial journey. When I wrote that business plan, so our, our company was owned by the largest telco in Canada, which is Bell Canada. So our board was the Bell Canada board. It was the same, same 20 or so individuals, I was asked to present the business [00:43:00] plan to that board. This was in the mid nineties, and I, I did, and I asked for $2 million, uh, a million of it just to give a license to the people that created the technology and, and a million to build some infrastructure and for some working capital and all that.
And, know, they gave me the million, they gave me the $2 million, uh, right in the meeting. They voted on it right in front of me. And, uh, it. You know,
Patrick: Know I’m ashamed
Brad Poulos: should be
Patrick: they or ashamed because they’re smarter and spend a lot more money than
Brad Poulos: I had talked to zero customers at that point.
Patrick: Yep,
Brad Poulos: $2 million out of them and we never even talked to a customer. of course, nowadays it’s not
Patrick: nowadays.
Brad Poulos: do, right? There’s some great resources out there. There’s the Startup Owner’s manual and Lean startup and, and, uh, running
Patrick: Running me
Brad Poulos: all these books that, that will
Patrick: that will tell you, no, no, no. Please take your ideas. And
Brad Poulos: you go talk to as
Patrick: we’re talking
Brad Poulos: as you possibly can about it. [00:44:00] Customers, uh, whether they be individuals, if it’s a. Yeah. B2C type thing, or often in the world you and I are talking about, it’s probably gonna be B2B. So go talk to your existing customers, but before you start this new thing, whatever it might be, go validate that you’ve found a real problem, that you understand the people that have it. and only then start building out solutions. And I could tell you I have very smart friends that have built. companies and products to find out nobody wanted what they were building and selling.
Patrick: Yep.
Brad Poulos: like, have you not read The Lean Startup?
Patrick: Yep.
Brad Poulos: So, um, so that’s, that’s probably the number one thing I think that’s changed in entrepreneurship.
Um, uh, well, I guess the other thing is just how much easier it is now. Uh, you know, the tools that are out there. Most of them, of course, internet based,
Patrick: Mm-hmm.
Brad Poulos: us get up and running more
Patrick: [00:45:00] Yep.
Brad Poulos: A great
Patrick: Mm-hmm.
Brad Poulos: the very, that again, that same business, the, the, the, the startup inside Tesat, wrote a payment gateway, so we could take, we could take credit cards. We wrote the code that Interfa faced with the bank, and then the bank had to approve that code before they would actually let us talk to them. You know? And nowadays, of course, that’s just a service that you just. Check on Spotify or whatever, so
Patrick: Right.
Brad Poulos: yeah.
Patrick: Yeah. No, and, and I think you’re hitting on a, a really interesting point. Um, a. Make sure there’s a willing buyer out there before you, you know, spend time, money, and energy in the business. And one of the best ways to do that, you also touched on this, was the internet has made that really. Accessible.
I can put up a landing page, I can run some Google ads. I can get people, I can check out the traffic. Coming to my, my landing page and seeing if people are, are willing to, uh, how far they’re [00:46:00] willing to get in the process before, you know, I let ’em know that they’re, they’re wait listed or something along those lines.
Uh, so I can, I can really test the market for a very. Little amount of money, uh, before I spend lots of time and energy, um, you know, building a business for a product that, that nobody’s interested in. So, yeah, this is, uh, this is great.
Brad Poulos: Small bets, right?
Patrick: Yeah, yeah, absolutely.
Brad Poulos: Fail, fail fast.
Patrick: Yeah,
Brad Poulos: Like don’t
Patrick: a hundred percent
Brad Poulos: to fail, but, but the idea is if you find out you’re wrong, you pivot After
Patrick: right.
Brad Poulos: $2,000, not 2 million.
Patrick: Right. And, and I think that’s the thing that most entrepreneurs are, successful entrepreneurs are really good at. They’re really good at failing forward, right? Like they take all these little bits and they figure out, oh, I don’t know which of these are going to work and what aren’t, isn’t going to work, but, uh, I’m, I’m going to just keep taking shots.
Right? And I, I had a mentor of mine tell me. Uh, the, my business will grow at the rate I make decisions. And they didn’t say, your business will grow at the rate you make. Right. Decisions, they just said [00:47:00] decisions. Right? And so it’s like I just have to decide and move forward and, uh, then I gotta make another decision if that one didn’t work and start moving forward.
Uh, so I, I think there’s, uh, a lot of truth to what you’re saying. Like you’ve just gotta keep, uh, iterating and before we know it we’ll, we’ll have something that, uh, the marketplace will. Be willing to pay for. And I’ve built a business that, uh, um, you know, is, is profitable and is, is worth the time and energy.
So, Brad, this has been great.
Brad Poulos: you
Patrick: Yeah, go ahead.
Brad Poulos: Sorry. Uh, last last point. You
Patrick: No, no.
Brad Poulos: be driven by evidence.
Patrick: Mm-hmm.
Brad Poulos: So, um, yeah, your
Patrick: Thank you.
Brad Poulos: can be very helpful, but you gotta be
Patrick: Yeah.
Brad Poulos: by
Patrick: And. And I think one thing that entrepreneurs have a hard time doing, and I’m, I’ve fallen into this camp, is, uh, asking themselves what is the truth of this situation? Because sometimes all of the evidence is staring us in the face, but we have sunk cost.
We have our pride, we have relationship, you know, that we, [00:48:00] we don’t want to. Uh, we’ll say, put it jeopardy. And so we, we don’t make the decision based on the truth that’s right in front of us. And, uh, uh, I think the, the best entrepreneurs are willing to act in the face of those hard decisions and go, yep, this is going to be uncomfortable, but this is the direction we need to go.
So, I, I love that. Thank you. So, Brad, this has been fantastic and, uh, I, I, there’s so many, uh, resources that you’ve put together, but I wanna point people to, uh, your books. Uh, Amazon’s got, um. Uh, from pitch to payoff, most problem solved themselves. We talked about that one we didn’t spend a lot of time talking about, but the small business operators manual, uh, is out there.
You’ve done a great job, uh, putting all of these resources together for the entrepreneur. Is there anything else people should be, be checking out that, uh, uh, you’ve got out there to, uh, uh, to serve the entrepreneur other than showing up to your classes?
Brad Poulos: my, my, yeah, right. If you’re in the Toronto area, you’re more than welcome. Um, [00:49:00] well, obviously I have a website, so brad pula.com. There’s, there’s a
Patrick: Yep.
Brad Poulos: on there for small, especially for the really, uh, like the very immature small business. There’s things on there that help you build out your biz plan, help you, um, put your financials together, that sort of
Patrick: Yeah.
Brad Poulos: so there’s a few resources there they might want to check out.
Patrick: Wonderful. Well, we’ll have links to all of that in the show notes, but, uh, this has been, this has been really insightful. I appreciate, uh, uh, your, your time and energy and I, I think there’s also, um, you know. The stakes, right? If, if I don’t take action on these things, you know, the, uh, I’m not addressing the issues.
Um, I, I, I risk building a, a bigger business that, uh, still fundamentally is inefficient or I don’t have the capital to, to help me grow it. Um, and, and so I’m, I’ve got a fragile operating system that, uh, I’m operating on. And, uh, the cost isn’t just financial. It affects our [00:50:00] time, our energy, our. Capacity our family life ’cause we’re so consumed by this thing.
And well even, well, you know, clearly even long-term wealth creation, when we run a successful business, every dollar that hits the bottom line, uh, helps us build wealth and it helps us build enterprise value. And so when we think about, you know, exactly what we’re saying there, you know, if. You build a stronger operation, you, you can run your business better.
Uh, it’s more resilient. Um, you can pass it on to the next generation. You can build this infrastructure that, uh, uh, can last for a long time and it takes you out of the, the firefighting, uh, that, uh, can come in in a business and you end up with more clarity, better execution, stronger decision making, just a healthier company and more freedom in general.
So, um, Brad, we, we appreciate, um. Uh, all of your, your wisdom and insight and, uh, thank you for joining us here today.
Brad Poulos: Sure. You’re a very gracious host. Thank you very much.
Patrick: Thank you.
That’s a wrap on another incredible episode of the Vital Wealth Strategies Podcast. Brad, thank you so much for your [00:51:00] time, your wisdom, and your generosity in sharing what you’ve learned over the four decades of building businesses. This was one of those conversations I know people are going to come back to and to you, the listener.
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